If you have ever heard of or read about cryptocurrencies such as Bitcoin, then you have probably also noticed some terms that seem kind of weird. These are “acronyms” because they start with the letter-sound combination of the word before it. Some examples include:
For example, what does the term “decentralized” mean? It means there is no one place where all the power to make changes lies.
There is not one individual or group of individuals who can take control of the system. This makes it very difficult to corrupt the software and hardware which make up the cryptocurrency.
Furthermore, since no single person or entity is controlling the network,
users cannot simply leave due to bad behavior or lack of functionality.
Since there is no central server, anyone in the world can use the technology for an open-source platform!
These features make cryptocurrencies popular because people want to trust the digital money being transferred thanks to the decentralized nature of the technology. Also, having a secure way to transfer value makes it more usable than traditional forms of payment.
Bitcoin was first introduced in 2009 by someone using the pseudonym Satoshi Nakamoto.
What is cryptocurrency?
That’s the million-dollar question! Most people are confused about what exactly a crypto coin is, so let us clear that up for you.
A cryptocurrency is a digital currency that uses cryptography to secure its transactions, as well as create new coins.
A cryptocurrency can be described as “money in software.” Just like how we have money in the form of paper notes or plastic cards, cryptocurrencies exist only as encrypted computer programs.
By having this encryption, users are ensured the security of their funds, as it is impossible to counterfeit without expensive equipment.
This also means that there is no central authority to take control of the currency –
something many critics say was an important factor when investing in crypto.
Because they are not controlled by a company, nor do they rely on a bank, cryptocurrencies are often considered a more direct way to transfer money than using traditional fiat currencies. These qualities make them attractive investment options.
Types of cryptocurrencies
There are two main types of cryptocurrency you will come across, they are called decentralized or non-decentralized coins.
Decentralized coins do not have an owner or holder. This means that no one has complete control over it, nor is there a centralized body that can take down the coin if things get bad.
There are several benefits to this structure. Because there is no central party, users do not need to trust each other or worry about fraud.
Since there is no single person in charge, these currencies are free from manipulation by anyone else (including the self). Since there is no leader, there is also less incentive for them to collapse or fail.
Furthermore, due to the lack of a head honcho, crypto does not rely as heavily on being protected by law and regulation.
Since nobody is standing between you and money, people tend to use more risky practices when investing, creativity when developing new apps, and honesty when dealing with others.
Due to there being no one at the top, there is no clear inspiration or motivation for developers.
Even though people may not be aware of what could happen. They will try to make sure everything goes okay through diligence and careful management.
Decentralization makes sense depending on how you look at it!
Many consider it to be the better option, while others believe it cannot survive long term.
How to buy cryptocurrency
Buying cryptocurrencies is easy! There are several ways to do so. You can go through an exchange, where you can buy bitcoins or other coins using your bank account or credit card.
Or, you can choose to shop at a crypto-to-crypto marketplace that does not need any kind of payment method as a source of currency.
Some companies offer wallet services. A wallet is like cash for your cryptocurrencies – you can access it anywhere and use it to send and receive money.
Some have even been linked to being able to spend their funds on merchandise online or in stores that accept cryptocurrencies!
And finally, some people enjoy giving away their money and encouraging others to do the same by investing in cryptocurrencies.
These individuals are referred to as miners because they earn new coins every time someone views a website that uses their service or purchases something that requires bitcoin as a form of payment.
There are several different types of crypto coins. Some are designed to reward you for using their coin, by giving out bonuses or free money for spending them. These are referred to as “incentive coins”.
Some remain stable in value, while others have seen dramatic swings over time. The price fluctuates not only due to changes in supply and demand but also because of rumors and news about the projects themselves.
By investing in cryptocurrency you are investing directly in the companies that produce and use these currencies. This is how most people choose to invest.
What is fiat currency?
A fiat currency is a unit of exchange that exists completely outside of any central bank or governing body. This means it does not need anywhere to store money, nor do they guarantee people will use their currency in transactions.
A fiat currency as we know it was invented by an individual –
a man named Benjamin Franklin who proposed a gold-backed currency back in 1775!
Since then, most major currencies have been at least partially backed by precious metals like gold.
However, this isn’t always the case. For instance, during the period known as The Great Depression,
many countries abandoned the gold standard and instead printed more money to keep their economies afloat.
This printing of new money caused inflation, which means the value of each unit of money decreases over time. We now call this phenomenon “currency devaluation.”
Because there is no longer any physical metal backing up these coins, people tend to distrust them.
That’s why some people prefer decentralized cryptocurrencies. No one but the computer program controls where your bitcoins go, so you never have to worry about someone taking advantage of you.
How do banks work?
Since the beginning of civilization, people have relied on money to ease trade. Money is a tool that we use to exchange goods and services with each other.
Before there was a paper currency or coins made of metals, people used barter!
Barter is when one person gives another person their product for something else they need. A common example is someone who has lots of milk can give some of their milk to someone who does not have enough to drink. They get milk in return!
This system works well where there are limited resources, but it becomes very difficult if everyone is trying to barter with each other.
This is why most civilized nations adopted a coin economy; with either gold or silver as currencies. These are referred to as fiat currencies because they are ‘frozen’ amounts of metal that serve as payment.
People usually agree that these types of currencies work, so let’s look at how crypto and Bitcoin work. Read on to learn more about this.